The Star-Ledger Archive
COPYRIGHT © The Star-Ledger 2008
Date:
2008/09/25 Thursday Page: 043 Section: BUSINESS Edition: FINAL Size: 327 words
ASK THE BIZ BRAIN
By KARIN
PRICE MUELLER
STAR-LEDGER
STAFF
Q. Most of the
news has been focused on the troubles of the stock market. What is the status of the bond market and the forecast for its
future?
— Maryann
A. The Federal Reserve and the Treasury are taking extraordinary steps to
provide liquidity to financial institutions, allowing the companies to get bad assets off their balance sheets.
Jack Oujo, a Wall Township-based certified financial planner and certified
public accountant, says he expects the government will get most or all of its money back, saying taxpayers will not be out
$700 billion.
"With that in mind, mortgage-backed bonds, high-yield bonds and municipal bonds appear to be
attractively valued, if the plan is approved by Congress and it works," Oujo says.
Before this
all happened, investors found a high premium charged for the safety of principal as the spread between 10-year investment-grade
corporate bonds and Treasurys widened, says Gerard Papetti, a CFP and CPA with U.S. Financial Services in Fairfield.
But
a world of events has happened since then.
Papetti says the fixed-income markets are still roiling from the credit
crisis and de-leveraging, as banks and financial services firms make big adjustments with the staggering downturn in housing
valuations. A decline in the quality of financial firms' balance sheets has caused margin calls and a scramble to raise
capital.
"Although commodities are down from their July highs, if the dollar weakens further, it will
add to U.S. inflation anxieties, which is not good for fixed-income markets," he says. "It is a dangerous situation."
Papetti says bond markets will continue to be affected by the lack of liquidity, and you'll find high
premiums (meaning low yields) for safety.
Unless you desperately need cash from your fixed-income investments, Papetti
says you should hold tight and review your portfolio for credit quality.
